The “Why” Behind the Predictions

You get the idea. There’s no telling where Bitcoin will stabilize (assuming it actually stabilizes at some point). Extreme predictions are great for generating buzz, but why do predictors choose these numbers?

The way I see these varied predictions breaks down into three categories:

No value/Bitcoin dies

Low value – $1 – $1,000 per Bitcoin

High value – $1,000+ per Bitcoin

The reasons for each group of predictions are pretty consistent within each group. I’ve identified these themes below. Keep in mind that these arguments may or may not be true. They are just the arguments that predictors make. I leave it to you to draw conclusions.

No value/Bitcoin dies – Governments prohibit, users abandon

Governments will outlaw Bitcoin, rendering it useless.

Money is a system to facilitate transactions sponsored by a governing body. Tax evasion in a widespread Bitcoin economy would be too easy, and governments would lose power. To keep themselves in business, governments will ban transactions between their currency and Bitcoin.

People need to trust their currency, and people trust government (even if they say they don’t).

Currency economies are, at their base, a collection of deep social relationships. Governments are one of the few stakeholders with the power and interest to maintain these networks. People trust governments to maintain these webs, not other people who have an interest in their own profit.

Competition with Bitcoin will force governments to strengthen their currencies.

Bitcoin fixes problems that many national currencies have. As Bitcoin picks up steam, governments will correct those problems within their own currencies, rendering Bitcoin useless.

Hackers will scare everyone away from Bitcoin.

No code is unbreakable, and hackers know it. Only a few major hacking heists will scare all potential users away from Bitcoin.

Bitcoin isn’t real.

Not only is Bitcoin non-fiat, Bitcoin is a delusion. Like cults whose predictions who go unfulfilled, Bitcoin adherents only shout louder about their belief as evidence against it mounts.

Fiat currencies are ones without a value, like the USD or the Euro (worth only the paper they are printed on). Examples of historical non-fiat currencies include salt and gold, which have inherent value as a material. The USD has a high value despite its fiat status because many people trust it from its days as a fiat currency. The Bitcoin never had that advantage, and will never amass a significant stable value.

Most, but not all, governments will ban it.

Bitcoin will be the love of governments like North Korea, Iran, Cuba, and other international pariahs as they come and go. They will have value to those countries, but they will make up a small global demand against a fixed supply of 21 million Bitcoins.

Bitcoin will always have a chance of becoming the next big thing.

That said, there will always be some hope that Bitcoin will be the global currency. As a result, some speculators will always demand it as a gamble. This demand will be low, but existent.

It’s not really decentralized.

The beauty of Bitcoin is that it is decentralized. No one power can control it. Except the computational requirements to mine Bitcoin are becoming prohibitive. There will be no central body, but those with the computing power to mine Bitcoins will be the only ones getting wealthy from it. The common consumer will not be attracted to such a system.

Competition from other digital currencies creates a crowded market.

Bitcoin’s success will spawn imitators that will each take some of Bitcoin’s market share, driving demand down.

High value – $1000+ per Bitcoin – Bitcoin replaces the USD as the “store of value” and transactional currency

Bitcoin is insulated against government/bank fluctuations and seizures.

Bitcoin will become the plaything of oligarchs who distrust national reserve currencies like the USD and EUR. Once Bitcoin stabilizes, they will push their holdings into the currency, driving up demand. Meanwhile, ordinary citizens in countries with unstable economies (Argentina, Cyprus) will convert their savings into Bitcoin to protect it from seizure, further driving demand. (This is also known as the “Gold 2.0” theory. Bitcoin will replace gold as the stable, international way to store money.)

The next reserve currency

This is an extension of the above rationale. As individuals start to save their wealth in Bitcoins, governments will follow. If governments start to use Bitcoin to back their own national currencies, the price of one Bitcoin could soar literally into the millions.

Bitcoin is young, give it time.

When the Internet was designed by the ARPA research network, it was a series of protocols designed to facilitate data transfer among research centers. When e-mail first launched, it was a series of protocols for exchanging messages using a series of personal addresses. Both protocols were ridiculed as useless and unwieldy. Bitcoin is a protocol for exchanging money, but will become more user friendly, attracting more merchants and users until it hits a tipping point where everyone is using it.

In short, the value of Bitcoin could boom by an infinite percentage as it gets older, but it could only drop by 100%.

Predictors have a vested interest.

Big name investors and personalities who predict six-digit values per Bitcoin often have an interest in driving up the hype and value. If they can pressure Bitcoin into the mainstream, they stand to profit. Big.

What is not being said

It’s important to note that hardly anyone is arguing that cryptocurrencies are disappearing completely. Even if many individual players drop out (think Mt. Gox or China), the network remains. The network is smaller and weaker, but as we’ve seen with smaller networks from terror cells to fax machines, once a network exists, it is nearly difficult to eradicate.

Further, I haven’t been able to find a mainstream prediction that keeps Bitcoin values in the $300-$900 range. The consensus is that the current value (about $575 at the time of writing) is just temporary volatility as Bitcoin “finds” its price.

As you can tell, there are a lot of “ifs” in the future of Bitcoin values. Your personal prediction might as well be as well qualified as anyone else’s. Getting a perfect bracket might be easier than predicting if and where Bitcoin will stabilize, but at least you can understand where these disparate values come from.